Will Your Construction Tech Go Out Of Business?

It has been an interesting couple of years in construction tech with the common theme in 2022 being: Much fewer fundraising announcements, no crazy valuations, some closures, some big-name drops in valuations, a lot of rumors.

So, should you be fearful that the construction tech company that you are utilizing on your project is going out business? I would say that you should certainly be vigilant, especially so in 2023.

No one believes it, talks about it, or even wants to believe it until it happens, usually without warning.

The current situation is that quite a few Construction Tech companies have raised hundreds of millions of dollars in 2021, when Venture Capital was at peak-investment-mode for the decade, at unrealistic valuations. What this means is that these companies had/have an increasingly large burn rate (money loss), which is totally normal for startups, but when you couple that with an industry that has razor thin profit margins, low R&D budgets (usually the first to get scrapped), increasing interest rates slowing down demand, you don’t paint a pretty picture.

Although Construction is a massive industry ($11Trillion annually), Construction Technology only stands at $9.6 billion, growing at 8.5% annually. This means that room for revenue growth in this industry is fairly limited. Startups operate on a 24 month runway basis on a best case scenario, so as a rule of thumb I would look out for the construction tech companies that have raised a lot of money in 2021, have significantly increased their headcount, and have not fundraised in 2022 or 2023. Chances are that incoming revenues are not enough to sustain them.

The construction industry is not in trouble in my opinion, and, most likely, neither is your data. The fact is that construction is severely underdigitized and behind on productivity metrics. What will most likely happen is that companies that have great products but have run out of money will be acquired by one of the bigger players (Autodesk, Oracle), and some companies with no great product, and thus low adoption, will wind down operations, even if they fundraised well previously. The truly passionate ones may even choose to slow down and have a second go at it going forward.

As the old proverb goes “trust, but verify”.